Munis On The Rise; As Defaults Fall, Where’s Meredith Whitney?

By Murray Coleman

The iShares S&P National Municipal Bond ETF (MUB), which had been falling after a report showed that sales of existing homes unexpectedly fell in June, is now rising.

The fund, which was up 5.5% through yesterday for the year, has started moving up as details of a new budget deficit plan are meeting with increased skepticism. Also, Moody’s reports that U.S. commercial real estate prices rose 6.3% in May, the first positive move in six months. MUB’s now up slightly. So is the SPDR Nuveen Barclays Capital Municipal Bond ETF (TFI).

Although still underwater, also paring losses are the iShares Barclays 20+ Year Treasury Bond (TLT) and the iShares Barclays 7-10 Year Treasury (IEF). But the longer-term ETF remains down more than 0.9% and IEF’s still slipping, off by 0.4%.

Separately, a newsletter that tracks municipal bonds has found that default levels fell 60% in the first half of 2011. Through June, defaults fell to 24 totaling $746 million, according to Distressed Debt Securities Newsletter.

By comparison, 60 muni defaults totaling $2.29 billion were recorded in the first-half of 2010.

That’s not helping to support predictions first made late last year by Meredith Whitney that a wave of defaults faced the muni marketplace.

“The data is not helping Meredith,” Matt Fabian, a managing director at Municipal Market Advisors, recently told Bloomberg. “It’s always been a possibility there would be a wave of defaults. You can’t say that it’s zero but it’s given no sign of starting.”

Whitney predicted on TV’s “60 Minutes” that 50 to 100 significant defaults loom in municipal bonds in 2011 totaling hundreds of billions of dollars. That was noteworthy since Whitney was one of the first to spot trouble at financial bellwethers such as Bank of America (BAC) and Citigroup (C) before the credit crisis hit in 2008.

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As exchange-traded funds and other investing vehicles have ballooned in number, the task of figuring out what works well and what doesn’t has only gotten harder. Barrons.com’s Focus on Funds looks under the hood of ETFs, mutual funds and hedge funds for overlooked values, actionable ideas and the latest pitfalls for fund investors.

Chris Dieterich has covered the U.S. stock market for The Wall Street Journal and Dow Jones Newswires. He is a graduate of Regis University and the Missouri School of Journalism.